The S&P 500 (SNPINDEX: ^GSPC) returned 220% over the last decade, growing at a consistent 12.3% annually, largely fueled by the performance of the information technology sector.
To delve deeper, the S&P 500 monitors 500 leading U.S. companies, encompassing both value and growth stocks across 11 market sectors specified by the Global Industry Classification Standard (GICS).
Notably, the information technology sector has been the sole sector to outperform the S&P 500 over the last ten years and emerged as the top-performing sector over the past five, ten, and twenty years.
This narrative lays the foundation for investing in shares of the Vanguard Information Technology ETF (NYSEMKT: VGT), showcasing the potential to transform $250 per month into $873,700 over the next thirty years.
Consistent Outperformance of the Information Technology Sector
The dynamic shift that ensued with the mainstream adoption of the internet in the mid-1990s ushered in several technologies that have since shaped subsequent decades, such as mobile devices, e-commerce, cloud computing, cybersecurity, and software-as-a-service.
These secular trends have propelled the information technology sector ahead of the S&P 500 and other market sectors over the preceding five, ten, and twenty years, as evidenced by performance charts.
Looking ahead, the imminent rise of artificial intelligence (AI) is poised to be one of the most revolutionary technologies in human history, with the potential to permeate various sectors and elevate technology companies, particularly chipmakers, cloud providers, and software vendors, as primary beneficiaries.
Tracking Technology Stocks with an Index Fund
The Vanguard Information Technology ETF monitors 313 technology stocks categorized into software and services companies, technology hardware and equipment providers, and semiconductor and semiconductor equipment manufacturers.
The fund’s top ten holdings include industry giants like Microsoft, Apple, Nvidia, Broadcom, Salesforce, and others, with Microsoft and Nvidia alone constituting 30% of the fund’s weighted exposure, poised to benefit significantly from the proliferation of AI.
Analysts at Morgan Stanley highlight Microsoft as the prime candidate to monetize generative AI, while Argus analysts commend Nvidia for its unique AI-as-a-service offerings delivered through the cloud.
Despite the potential growth in various tech stocks driven by AI, the diversity and broad exposure offered by the Vanguard Information Technology ETF present an attractive investment proposition for spreading investments across multiple technology companies.
Transforming Monthly Investments into Substantial Returns
The Vanguard Information Technology ETF has yielded a remarkable 1,160% return over the last twenty years, compounding at an average rate of 13.5% annually, inspiring confidence in similar long-term performance ahead.
Assuming a slightly conservative 12% annual return moving forward, monthly investments of $250 in the Vanguard Information Technology ETF could accumulate to $57,500 in a decade, $247,300 in two decades, and a staggering $873,700 in three decades.
However, investors should be mindful of the historical volatility associated with the Vanguard Information Technology ETF, demonstrating a 10-year track record of fluctuations in value.
Exploring Vanguard Information Technology ETF for Potential Investment
In the tumultuous sea of finance, where waves of volatility can either sink ships or carry them triumphantly forward, Vanguard Information Technology ETF stands out as a vessel worth considering for investors. The ETF has a beta of 1.15, indicating a historical relationship with the S&P 500 that promises similar movement in the days ahead.
As twilight descends on the horizon of fiscal decisions, the expense ratio of Vanguard Information Technology ETF shines like a beacon of frugality. At a mere 0.1%, investors will part with a mere $10 annually for every $10,000 invested – a rate that keeps the ship sailing smoothly in comparison to the 0.98% average seen in similar investment vessels, as reported by Vanguard.
Considering the Investment in Vanguard Information Technology ETF
Before taking the plunge into the depths of Vanguard Information Technology ETF, a measured evaluation is in order. The Motley Fool Stock Advisor unveils their discerning eye by highlighting the 10 best stocks they deem worthy of investment, a list that intriguingly excludes Vanguard Information Technology ETF. Could the omitted 10 stocks unfurl spectacular returns in the years to come, dwarfing the potential of the Vanguard ETF?
Guiding investors like a well-lit lighthouse on a stormy night, the Stock Advisor service maps out a route to success. With insightful direction on portfolio construction, regular updates from astute analysts, and a pair of fresh stock picks monthly, the service has outpaced the S&P 500 return threefold since their voyage commenced in 2002*.
*Stock Advisor returns as of April 22, 2024
JPMorgan Chase is an advertising partner of The Ascent, a Motley Fool company. Trevor Jennewine has positions in Adobe and Nvidia. The Motley Fool has positions in and recommends Accenture Plc, Adobe, Advanced Micro Devices, Apple, Cisco Systems, JPMorgan Chase, Microsoft, Nvidia, Oracle, and Salesforce. The Motley Fool recommends Broadcom and recommends the following options: long January 2025 $290 calls on Accenture Plc, long January 2026 $395 calls on Microsoft, short January 2025 $310 calls on Accenture Plc, and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.